Archive for July, 2015

  • Morning News: July 7, 2015
    , July 7th, 2015 at 7:12 am

    The Latest: Greece’s New Finance Minister Arrives for Talks

    Summit Offers Chance to Get Back to Negotiations on Greece Bailout

    European Commission and France Move to Keep Greece in Eurozone

    UK May industrial Output Jumps On Oil Boost, But Manufacturing Weak

    Scant Relief From Beijing for Bruised Investors

    Oil Approaches Bear Market

    White House Solar Plan Aims at Low- and Middle-Income People

    Why Samsung’s Profits Fell For The 7th Consecutive Quarter

    TerraForm to Acquire Wind Farms for $2 Billion

    Sealed HSBC Report Shows U.S. Managers Battling Cleanup Squad

    For Start-Ups, How Many Angels Is Too Many?

    Rich Russians Are Begging Elon Musk to Sell Them Teslas

    Reddit CEO Apologizes After Outrage Over Employee Dismissal

    Jeff Carter: Grexit Feels Like a Pro Draft

    Joshua Brown: Chart o’ the Day: Why the Market Feels Worse Than It Is

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  • Oil Plunges
    , July 6th, 2015 at 11:07 pm

    sc07062015

    The price of oil had one of its worst days all year today. Until recently, it looked as if oil had stabilized. In this case, the problem isn’t Greece but China. Investors are worried that a slowdown in China could reduce demand for crude. Off to the side, Iran has hinted that it’s looking to grow its exports.

    The fall started late last week as U.S. producers said they wanted to ramp up production and data showed them adding drilling rigs to their fields for the first time since December. Iraqi production also turned out to be larger than expected, and data showed production across the Organization of the Petroleum Exporting Countries rising throughout June, analysts said.

    “Even without additional Iranian barrels, there is already too much oil,” said Tim Evans, analyst at Citi Futures Perspective in New York. “We may have tipped the balance in the market.”

    The U.S. benchmark oil price slid for the third session in a row, closing down $4.38, or 7.7%, to $52.53 a barrel on the New York Mercantile Exchange. Monday’s losses are the biggest in percentage terms for a single session since February, though they also included declines during limited electronic trading on the Friday holiday.

    The reaction in the stock market was predictable — energy and materials were down the most while utilities and healthcare were mostly unscathed (an anti-Quadrant I day). Several of the major energy stocks like Chevron, Royal Dutch Shell, ConocoPhillips and Rio Tinto hit new 52-week lows. Our Buy List has no energy stocks so that helped us outperform the indexes by a little bit.

  • Greece Votes “No”
    , July 6th, 2015 at 8:10 am

    The results are in and the people of Greece voted strongly against the bailout. I honestly don’t know what comes next. I suppose it’s possible for Greece to stay in the eurozone, but that seems unlikely. The choice Greece faces is between two very bad outcomes. The country will now be a pariah in the international debt market. Greece’s colorful Finance Minister, Yanis Varoufakis, has resigned.

    There’s a big eurozone meeting on Tuesday to discuss what comes next. All banks in Greece are closed today. Tsipras believes he now has greater negotiating power. On the other hand, Greece’s creditors believe they have more reasons to cut their losses and move on.

    S&P 500 futures are currently down about 0.88%.

  • Meanwhile….
    , July 6th, 2015 at 7:54 am

    In China:

    The losses — Chinese shares have shed more than a quarter of their value in three weeks — pose an added risk, and possibly greater danger, to a global economy grappling with Greece’s difficulties in repaying foreign loans and its possible exit from the euro. About $2.7 trillion in value has evaporated since the Chinese stock market peaked on June 12. That is six times Greece’s entire foreign debt, or 11 years of Greece’s economic output.

    big07062015

  • Morning News: July 6, 2015
    , July 6th, 2015 at 5:57 am

    Greece Debt Crisis: What Happens Now After Bailout Terms Rejected?

    Greece Debt Crisis: Finance Minister Varoufakis Resigns

    Dismay in European and Asian Markets After Greek Vote

    Puerto Rico Shows Greece Needs €50 Billion A Year: And Would Still Fail Even Then

    German Factory Orders Fell in May as Greece Damped Optimism

    China’s Market Rout is a Double Threat

    Can America’s Big Banks Get Less Complex?

    U.S. Sided With Tax-Avoiding Companies Over Contracting Ban

    Traders Recall the ‘Rush’ and ‘Roar’ as Famed Pits Close

    Step Aside Black Friday – Meet Prime Day

    With Merging of Insurers, Questions for Patients About Costs and Innovation

    New Honda Chief Takahiro Hachigo Steers Away From Expansion

    Philip Morris to Cut Stake in Indonesian Unit, Could Raise Over $1 Billion

    Howard Lindzon: The Bombay Bubble? …Where the Hell is Bombay

    Jeff Miller: Weighing the Week Ahead: Will FedSpeak Interrupt the Lazy, Hazy, Crazy Days of Summer?

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  • CWS Market Review – July 3, 2015
    , July 3rd, 2015 at 7:08 am

    “Investors must keep in mind that there’s a difference between a good company and a good stock. After all, you can buy a good car but pay too much for it.” – Loren Fox

    In last week’s CWS Market Review, I told you how calm and relaxed the market had become. It seemed like the market was taking it easy this summer. We hadn’t had a 2% drop all year.

    Well, I guess I jinxed the market. Sure enough, on Monday, the S&P 500 not only dropped more than 2%, but the index had its worst daily fall in 17 months. Once again, investors were spooked by the unending mess in Greece. There’s a big yes-or-no national referendum scheduled for Sunday.

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    Once again, I’ll assure you not to worry about Greece. The simple version is that Wall Street doesn’t have much to focus on right now, so it’s giving outsized attention to Greece. Cullen Roche added some much-needed context by noting that Greece was defaulting on $1.6 billion. That’s equivalent to 30 hours’ worth of revenue for Walmart’s (WMT). The good news is that second-quarter earnings season starts next week, and we’ll finally have much more important news to digest.

    In this week’s CWS Market Review, we’ll take a look at the upcoming earnings season and what it means for the market. I’ll also cover the latest news on the PayPal spinoff from eBay (EBAY). On July 20, PayPal will join our Buy List as a stand-alone company. I’ll also have the latest on Cognizant Technology (CTSH). The shares dropped on Thursday, but I don’t think it’s anything to worry about. Now let’s look at how well our Buy List did during the first half of 2015.

    At the Halfway Marker, Our Buy List Is Beating the Market

    I often tell investors not to stress out over short-term moves in the stock market. Viewed minute by minute, the market has a mind of its own. Investors need to understand that stocks fluctuate. Sometimes they go up for no good reason, and sometimes they go down for no good reason. To quote Hyman Roth, “this is the business we’ve chosen.” Only by taking the long view can you really take the measure of how well you’re doing.

    On Tuesday, Wall Street closed the books on the first half of the year. In those six months, the S&P 500 gained a mere 0.20%. That’s the market’s worst first half since 2010. I’m please to report that our Buy List continues to outpace the rest of the market. The 20 stocks on our set-and-forget portfolio gained 3.02% for the first half of the year. Remember, that’s with making ZERO trades all year. (A mutual fund company would probably advertise our numbers as beating the market by 15 to 1.)

    Once we include dividends, our Buy List gained 3.59% for the first half of the year. With dividends, the S&P 500 gained 1.22%. Roughly speaking, our Buy List yields about 1.1% annually, while the S&P 500 yields about 2%. (I can’t give an exact figure, since our dividends are probably growing faster than the rest of the market.)

    Last year, our Buy List lost to the market (11.80% to 13.69%). That broke our streak of beating the S&P 500 for seven years in a row. I started the Buy List to show ordinary investors that with patience and a little discipline, you can consistently beat Wall Street over the long haul. So far, we’re on our way towards beating the market yet again. Patience and discipline are still the keys. Now let’s look at the upcoming earnings season.

    Q2 Earnings Season Begins Next Week

    On Wednesday, July 8, Alcoa (AA) will officially kick off Q2 earnings season when it reports. Over the next five weeks, 16 of our 20 Buy List stocks will report sales and earnings for the second three months of the year. A few will also update their guidance for the rest of the year. The first Buy List stock to report will be Wells Fargo (WFC) which is scheduled to report on Tuesday, July 14. I’ll preview more of our earnings reports in upcoming issues.

    You’ll notice that many of our stocks offer sales and earnings guidance. Bear in mind that companies aren’t required to do this. It’s generally a sign of a better-run company that it tells investors what their goals are for the future.

    Wall Street currently expects the S&P 500 to earn $28.42 per share for Q2. (That’s the index-adjusted number. Every one point in the S&P 500 is worth about $8.83 billion.) As with most quarters, analysts have been paring back their estimates. At the start of the year, Wall Street had expected Q2 earnings of $32.36 per share. But as investors realized the full scope of the damage caused by the surging dollar, Wall Street lowered its estimates. The continued impact of the dollar is one of the open questions for this earnings season. Wall Street had overestimated the damage done during Q1.

    If Wall Street’s estimate for Q2 is accurate, then this will be the third quarter in a row of declining earnings. As this “earnings recession” began, there was a lot of fear that it would turn into a broader economic recession. Now that we have more data, it appears to be a minor blip within a favorable climate of rising sales and earnings. In fact, earnings are projected to increase slightly in Q3, and for Q4, Wall Street expects earnings growth of more than 17%.

    I should also mention that dividends continue to grow very nicely. The S&P 500 saw dividend growth of nearly 10% during Q2. That means that despite many pronouncements of a stock-market bubble, dividends have actually been growing faster than stock prices, and the market’s dividend yield is rising, not falling.

    We got more mildly positive news on Thursday, when the government said that the economy created 223,000 net new jobs in June. That was a bit below consensus, but basically it was what the market had been expecting, although the numbers for April and May were revised lower. The unemployment rate dipped to 5.3%, which is the lowest since April 2008. Part of the reason for the lower jobless rate is that more people are leaving the job market. The workforce participation is now at a 38-year low, but some of that is due to demographics (all those retiring Baby Boomers).

    The bad news was that average hourly earnings were unchanged. Frankly, wage growth has been weak. What this means is that there’s less pressure on the Fed to raise rates soon. Bill Dudley, the Grand Poobah of the New York Fed, recently said the Fed could increase rates in September. Call me a doubter. The futures market currently thinks there’s a 50-50 chance the Fed will raise interest rates at their December meeting. That sounds about right.

    The important takeaway from this jobs report is that there’s a lot of “slack” in the labor market. In previous recoveries, economists had assumed that inflation would start creeping up once unemployment hit 5.5% or so. That’s just not true anymore. In fact, I wouldn’t be surprised if the tipping point is now below 5%. That’s the thing about financial crises—the old rules no longer apply. The U.S. economy is nowhere close to full capacity. That’s good news for stock investors.

    There was also mildly good news with the ISM Manufacturing report. The index came in at 53.8. That’s the second monthly increase in a row. It’s also the 30th month in a row that the ISM report topped 50, which indicates an expanding manufacturing sector. The Commerce Department also said that construction spending rose 0.8% in May. It’s now at a 6-1/2-year high. I hate to sound like a careless optimist, but I think Q2 GDP will be one of the best reports in years.

    eBay to Spinoff PayPal On July 20

    Mark your calendars for Monday, July 20. That’s when eBay (EBAY) will finally spin off PayPal. Technically, the shares will be “distributed” on Friday, July 17, but they won’t start trading until the following Monday.

    If you’re an eBay shareholder, you’ll automatically get one share of PayPal for each share of eBay you own as of the close of business on July 8. The ticker symbol for PayPal will be PYPL.

    Now there’s the issue of how much PayPal is worth. That’s a toughie. I won’t make a prediction on that, but most market watchers think PayPal will start trading around $35 per share. That would mean that eBay’s stock, without PayPal, will drop to around $26 per share. Remember, you’re not losing anything. You’re gaining a new stock.

    To help make the adjustment smoother, “when-issued” shares of PayPal and eBay sans PayPal will start trading on Monday July 6. When-issued shares are for deals that have been announced but haven’t yet been consummated. They’re useful for gauging the market’s interest in the deal. But don’t worry about the when-issued shares. I just wanted you to be aware of what’s going on when you see them. You won’t get your PayPal shares for a few more days.

    Overall, I think this is a very good deal for shareholders. I also think there’s a good chance that PayPal will be snapped up quickly by a large finance or tech company. I’m looking at you, Amazon (AMZN)!

    Until then, PayPal will join our Buy List as the 21st stock. Just like the others, it’s locked and sealed for the rest of the year. I won’t have a Buy Below on PayPal until the deal is complete. I’ll also provide all the details on how we’ll account for the spinoff on our track record. eBay will report Q2 earnings, its last as a combined unit, on Thursday, July 16. Look for a good report.

    Before I go, I want to highlight a few of our Buy List stocks that look especially attractive at the moment. I like Cognizant Technology (CTSH), especially below $62 per share. The shares got nicked on Thursday after Centene said it was buying Health Net, which is a partner with Cognizant. That deal would cost Cognizant $100 million in revenue, but the company was quick to reiterate its full-year guidance for earnings of at least $2.93 per share.

    Microsoft (MSFT) also looks quite good if you can get it below $45 per share. The shares yield 2.8%, and I expect another dividend increase later this year.

    Signature Bank (SBNY) looks good below $147 per share. Here’s a recent profile of the bank by Alyssa Oursler.

    Wabtec (WAB) has pulled back recently, and I think it’s a solid value here. WAB is especially attractive below $95 per share. The company recently raised its dividend by 33%.

    That’s all for now. The stock market is closed on Friday, July 3, so investors can enjoy a three-day holiday weekend. Expect some drama next week. I didn’t talk much about Greece in this issue, but the big referendum is scheduled for Monday. It’s a lot of sound and fury and doesn’t signify all that much. Still, traders will look for any excuse to buy or sell. The big news will be the start of earnings season on Wednesday. Also on Wednesday, the Fed will release the minutes of its last meeting. That may contain clues as to what the central bankers are thinking. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

    – Eddy

  • Morning News: July 3, 2015
    , July 3rd, 2015 at 5:17 am

    Greeks Split Down Middle Before Bailout Referendum

    Why A Troubled Greece Is A Boon For Germany and Euro

    Euro-Area Economy Shakes Off Greek Shackles on Draghi Stimulus

    China Tells Investors: Go Ahead, Bet the House on Stocks

    U.S. Economy Adds 223,000 Jobs; Unemployment at 5.3%

    Oil Oversupply Meets Rising Demand in Quietest Market Since 2013

    BP’s $18.7 Billion Oil-Spill Deal Still Leaves Lesser Messes

    Obamacare Cash Drives Healthcare Merger Mania

    Aetna Agrees to Buy Humana for $37 Billion in Cash, Stock

    Biogen to Pay Applied Genetic $124 Million to Develop Eye-Disease Treatments

    Dollar Tree and Family Dollar Will Sell 330 Stores to Seal Merger Deal

    Warren Buffett Will Celebrate July 4th With A New Stock: The Kraft Heinz Company

    Employers Have Greater Leeway on Unpaid Internships, Court Rules

    Roger Nusbaum: All That Crap About Not Panicking?

    Cullen Roche: Should Money Earn Interest? (Very Nerdy)

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  • Cognizant Down on Health Net Acquisition
    , July 2nd, 2015 at 9:58 am

    Shares of Cognizant Technology (CTSH) are down about 5% after Centene said it’s going to buy Health Net for $6.3 billion. Health Net has been a key partner for Cognizant.

    Cognizant released a statement:

    Health Net Relationship

    “Today’s announcement by Health Net and Centene is yet another example of how the healthcare landscape is rapidly changing, with increasing focus on medical costs, consumerization and a changing regulatory environment driving consolidation as well as an ongoing search for solutions that fundamentally change the business model and economics of healthcare management,” said Gordon Coburn, President, Cognizant. “As we congratulate Health Net and Centene today, we look forward to continuing to partner with them to support their technology and operations requirements.”

    Key updates on the relationship include:

    Cognizant remains a key strategic technology and operations partner to Health Net, with the existing relationship being extended through the end of 2020 with a total contract value of approximately $520 million. This will provide ongoing support of critical Health Net applications and processes.

    The planned implementation of a seven-year master services agreement for end-to-end administrative services between Cognizant and Health Net, first announced in August 2014 and scheduled to begin in mid-2015, is being deferred while Health Net and Centene complete the merger review and approval process. Cognizant expects that if the merger of Health Net and Centene is completed, the existing master services agreement will not be implemented as there will likely be overlaps in services and capabilities planned to be provided by Cognizant.

    Cognizant has negotiated the right to license certain Health Net intellectual property for incorporation into its healthcare management solutions and as-a-service platforms.

    Coburn, added, “With our extensive healthcare expertise and 2014 acquisition of healthcare software leader TriZetto, Cognizant is well positioned to capitalize on the dynamic healthcare market and offer solutions that help payers and providers evolve as a digital enterprise and change their cost structures to address customer needs and meet regulatory requirements.”

    Cognizant also reiterated their full-year guidance of revenue of at least $12.34 billion and adjusted EPS of at least $2.93.

    “Despite the anticipated loss of approximately $100 million in incremental revenues during the second half of 2015, we are pleased to reaffirm our guidance for the year due to continued strong demand and projected over-performance in other parts of our business. Today’s announcement by Health Net will not impact our ability to achieve our goals for the year,” said Karen McLoughlin, Chief Financial Officer, Cognizant.

  • June NFP +223K
    , July 2nd, 2015 at 9:00 am

    Last month, the U.S. economy created 223,000 net new jobs. The unemployment rate dropped to 5.3%. That’s the lowest since April 2008.

    The reports for April and May were revised lower by 60,000.

    The labor force participation rate fell to 62.6%. That’s the lowest in nearly 40 years.

  • Morning News: July 2, 2015
    , July 2nd, 2015 at 7:18 am

    Battle for Greek Votes Under Way as Cash Shortages Bite

    Defiant Varoufakis Says He’ll Quit If Greeks Endorse Austerity

    China Relaxes Margin Rules as Share Prices Fall

    R.B.S. to Reduce Cash Management Operations Outside Britain and Ireland

    ADP Reports 237,000 Jobs Added by Businesses in June

    Export-Import Bank’s Expiration a Victory For Billionaire Koch Brothers

    Centene to Buy Health Net for $6.8 Billion in Shares, Cash

    Spanish Language Network Univision Files For U.S. IPO

    Tesla Beats Delivery Forecast With 52% Quarterly Surge

    Can Xiaomi Reach Its Bold 2015 Sales Target?

    SunEdison and Gamesa Sign a Memorandum of Understanding to Develop up to 1 Gigawatt of Wind Power Plants

    Whole Foods Co-CEOs Admit To Overcharging Customers

    Gerson Lehrman Seeks New Image as Investor Cashes Out

    Credit Writedowns: Greek Default

    Joshua Brown: Grantham: “People Respond To The Incentives They’re Given”

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